Debt Reduction

In the present day, it is easy to get into debt. Promotional advertisements on television, emails from credit card companies and telephone calls from mortgage lenders, all join hands to push you into the inescapable debt swamp. Initially, everything seems to be simply. You fill out an online application form, thereafter, you get the credit, and then you go on a shopping spree to buy all the once inaccessible things. Problems arise when you spend so much credit that it becomes difficult for you to pay your monthly credit card bills. That's where debt reduction enters the scene.

Conversely, debt reduction is not as simple as taking candy from a baby. There are innumerable debt reduction strategies, and each one of them is associated with some good points and a couple of bad points. The availability of such a wide assortment of debt reduction strategies typically makes it difficult to ascertain which one of them is the best for you. To help you make an educated choice, we have compiled a comprehensive account of different debt reduction strategies. Without spending another minute, let's embark our debt reduction endeavor. Beg or Borrow

Consider yourself lucky, if your wealthy friend or relative is ready to pull you out of the debt swamp. However, think thrice before choosing this debt reduction strategy. Although borrowing from a friend or relative is a good way to avoid monthly disbursements, which are usually associated with high interest rates, but borrowing can also ruin your relationship forever. Remember, you'll never be able to face your rich uncle if you fail to pay back the borrowed amount. Furthermore, the equation of the relationship would change even if the borrowed amount was a gift. Here, it would be worthwhile to give this debt reduction strategy a lot of thought before employing it. Credit Counseling

Credit counseling is a good way to negotiate a debt management plan with all your creditors. Effective credit counseling allows you to consolidate all your outstanding credit bills into one monthly payment, and this amalgamation considerably lowers the interest rates as well as the monthly payments. Credit counseling companies typically charge on the basis of the number of accounts in your debt management plan. Here, credit counseling can turn out to be an expensive debt reduction strategy, if you have multiple creditors or if the company overcharges. Keep in mind that there are thousands of disreputable credit counseling companies waiting to steal your money. Therefore, shop around a bit and compare programs. Debt consolidation Loan

This debt reduction strategy is particularly valuable for those people who are paying their monthly debt bills regularly, but just want their debt repayments to become more ordered. A debt consolidation loan merges all your loans into one loan, that is, you do not have to pay your creditors separately. The company providing you the debt consolidation loan will pay all off your debt, while you will make the monthly payment to the company, and that too at an interest rate, which is many times lower than the total amount of interest you were paying to your Creditors. Moreover, the interest of debt consolidation loan is usually tax deductible. A collateral and good credit score are the two primary requirements for obtaining a debt consolidation loan.

No doubt, debt consolidation loan is an effective debt reduction strategy, but before choosing it, you should take into account the following drawbacks:

O You'll be borrowing money against you home, and failure to make payment will put your home at risk.

O Debt reduction through consolidation may lure you to create more debt.

O Fees, interest rates and other charges often make this debt reduction strategy a costly proposition.

Bankruptcy

It should be your last debt reduction resort. There are two types of consumer bankruptcies- first, where you surrender all your property, which is sold to pay off your debt, and the second, where a court-supervised plan is set up for you to pay back your debt over a period of 3 to 5 years. In either case, you will get negative marks on your credit report. Moreover, you will face a lot of difficulties in obtaining loans from financial institutions and obtaining employment. Bankruptcy is usually a heavier burden to carry than debt. Here, it would be worthwhile to avoid this debt reduction strategy as long as possible.

Some astonishing facts about debt:

O A study conducted by Federal Reserve in 1992 showed that about 43 percent of US families spend more than they earn.

O According to USA Today, the average household's personal debts, which includes mortgages, car loans, credit cards, etc. Stands at $ 84,454.

O Calendar year 2005 witnessed a sudden surge in the filing of bankruptcy cases. Approximately 2 million bankruptcies were filed in a period of twelve month.

These statistics clearly indicate that the Americans are reeling under the burden of massive debt. In such adverse circumstances, debt reduction becomes an inevitable necessity, and the best way to shoo away the debt demon forever is to endorse any one of the above debt reduction strategies.